Business groups urge Carney to pause Digital Services Tax in fear of Trump backlash

Globe and Mail

20 hours ago

A group of Canadian business associations are pressing Prime Minister Mark Carney to pause the implementation of 'discriminatory' taxes that have spurred U.S. President Donald Trump to retaliate with proposed tax hikes.
In a letter sent to Mr. Carney on Thursday, six industry associations representing a wide variety of businesses – including Canada's major banks, life insurers, retailers and the venture capital community – asked the government to pause the scheduled June 30 payment of the Digital Services Tax, which was introduced in 2024 and targets large U.S. technology companies.
Canada passed the DST retroactively to 2022 after the Liberal government said it could no longer wait for a multilateral agreement to emerge from the Organization for Economic Cooperation and Development for taxing global tech giants, most of which are based in the U.S.
The deadline for filling the first DST return for 2022-2024 and paying the tax is June 30.
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Implementing a DST in Canada was intended to ensure digital businesses that monetize the data and content of Canadian users are 'paying their fair share,' the federal government said in its 2024 budget document.
The Canadian business groups said pausing the DST would allow negotiations ahead of – and at – the G7 summit next week, to continue without the 'risk of further escalation by the administration on current tariff actions that place considerable risk on Canadian businesses and families.'
The DST is just one tax among a broader group of 'unfair' taxes Mr. Trump has flagged in his recent One Big Beautiful Bill Act. Other taxes on Mr. Trump's hit list are diverted profits taxes and the undertaxed profits rule, both of which are global initiatives meant to ensure multinational firms pay enough tax.
Canada released draft legislation last year to implement a UTPR as an amendment to Canada's Global Minimum Tax Act, but did not table it in Parliament.
The Canadian business associations' letter expresses concern that the DST, UTPR and GMT run counter to Mr. Carney's plan to build a single Canadian economy, strengthen relations with the U.S. and reduce costs for Canadians.
'The unintended consequence of the DST and other digital taxes is that they have handed the U.S. Administration a ready-made issue to rally support from U.S. lawmakers who are now working to retaliate,' the letter says.
A key example is Section 899 of Mr. Trump's bill – a U.S. tax proposal that is targeting foreign jurisdictions that have implemented a discriminatory tax.
The bill was recently passed by the U.S. House of Representatives, but still requires Senate approval. If Section 899 becomes law, Canadians could see withholding and income tax increase by five percentage points in the first year – rising to a maximum of 20 per cent for income tax and up to 50 per cent total for withholding tax, on any holding of an American asset held by a Canadian or the U.S. subsidiary of Canadian company.
'Every pension fund, retirement fund, investment account, and deeply interconnected investment funds with American holdings, held by the likes of teachers, municipal workers, elected officials, and regular everyday Canadian families, are at risk,' the Canadian business associations' letter says.
If Canada wants to commit to building stronger ties with the U.S., the group said it cannot be achieved if Ottawa proceeds with its current timeline to collect a punitive retroactive tax on digital service companies on June 30.
'The dire downstream effects of this are still avoidable,' the letter says.
Meanwhile, 21 members of the U.S. Congress have sent a letter of their own urging Mr. Trump to push Canada to drop the DST before the end of the month, when the first payment is due.
In a June 11 letter, the U.S. Congress group said 90 per cent of what Canada would collect under its DST will come from U.S. firms.
'Allowing Canada to proceed with this unprecedented, retroactive tax on U.S. firms would send a signal to the rest of the world that they have the green light to proceed with similar discriminatory cash grabs targeting our firms, workers, and tax base,' the letter says.
The June 11 letter, alongside another letter sent last week to the U.S. administration from the U.S. Chamber of Commerce and other trade groups, say that Canada has the regulatory authority to delay the date of payment and other provisions of the DST without having to pass new legislation.
Canada's Department of Finance did not respond Thursday to a request for comment on the tax.
The Canadian group of business associations – which consists of the Canadian Chamber of Commerce, Canadian Life and Health Insurance Association, Retail Council of Canada, Canadian Venture Capital Association, Future Borders Coalition and Canadian Bankers Association – said the current political climate and risks to the Canadian economy could not have been foreseen when the DST was first introduced.
'There is still time to correct course and demonstrate that Canada is serious about strengthening alliances, improving competitiveness, and restoring affordability,' the letter says. 'The alternative will lead Canada down a very difficult path.'